US INTERNATIONAL MARKETING LIMITED V ANZ NATIONAL BANK LIMITED HC AK CIV 1998-404-195

US INTERNATIONAL MARKETING LIMITED V ANZ NATIONAL BANK LIMITED HC AK CIV 1998- 404-195 23 June 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 1998-404-195BETWEEN US INTERNATIONAL MARKETING LIMITED Plaintiff AND ANZ NATIONAL BANK LIMITED Defendant Hearing: 16 June 2006 Counsel: D Chan for Defendant in support B O'Callahan for Plaintiff to oppose Judgment: 23 June 2006 at 3.00 p.m.JUDGMENT OF RODNEY HANSEN JThis judgment was delivered by me on 23 June 2006 at 3.00 p.m. Pursuant to Rule 540(4) of the High Court Rules. Registrar/Deputy Registrar Date:Solicitors: Minter Ellison Rudd Watts, P O Box 2793, Wellington for Defendant in supportCarter & Partners, P O Box 2137, Lower Shortland Street, Auckland for Plaintiff to opposeIntroduction[1] The defendant (the Bank) applies for further security for costs. The application is opposed by the plaintiff. [2] This is the third such application. Soon after the proceeding was commenced, the Bank applied for security for costs. The plaintiff consented and paid $20,000 into Court as security. [3] A hearing on liability then took place. I found for the Bank. The plaintiff appealed successfully. The Bank then applied for leave to appeal to the Privy Council. That application stands adjourned until after the plaintiff's claim for damages has been heard. [4] The Bank then made a further application for security for costs. The plaintiff acknowledged that it was impecunious. On the basis that a trial on damages would take three days, Williams J made an order on 31 March 2004 that the plaintiff provide security of $18,000. [5] It has now become apparent that the trial on damages will take longer and be more costly than anticipated. The estimated duration of the hearing is twelve days. Twelve witnesses will be called, a number of them from overseas. An interpreter will be required for several Indian witnesses which will slow the pace of the trial. The Bank estimates costs (on a 2B basis) and disbursements at $132,000. Further security is accordingly sought.Jurisdiction to order security[6] Rule 60 of the High Court Rules provides that if the Court is satisfied that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in its proceeding, the Court may, if it thinks fit in all the circumstances, order the giving of security for costs.[7] There is no dispute that the plaintiff will be unable to pay costs. An updating affidavit by its sole director, Mr Inderjit Singh, confirms that it is impecunious. There is no indication that its financial position will materially change. [8] In resisting the application the plaintiff relies on the principle that an order for substantial security which may prevent the plaintiff from pursuing the claim should be made only after careful consideration and where the claim has little chance of success – AS McLachlan Limited v MEL Network Limited(2002) 16 PRNZ 747 (CA). See also Churchill Group Holdings Limited & ors v Aral Property Holdings Limited & anor CA283/05 31 May 2006. It maintains that it has a good arguable case for damages. [9] For that purpose, an entitlement to nominal damages is not enough. The plaintiff has already succeeded in establishing liability but that alone does not assure it of an outcome which would disentitle the defendant to costs. I accept, as did Williams J when he considered the second application for security for costs, that something more than an award of nominal damages is required before the plaintiff could be regarded as "successful". As Devlin J said in Anglo-Cyprian Trade Agencies Limited v Paphos Wine Industries Limited [1951] 1 All ER 873 at 874:No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct. In applying that rule, however, it is necessary to decide whether the plaintiff really has been successful, and I do not think that a plaintiff who recovers moninal damages ought necessarily to be regarded in the ordinary sense of the word as a "successful" plaintiff. In certain cases he may be, eg where part of the object of the action is to establish a legal right, wholly irrespective of whether any substantial remedy is obtained. To that extent a plaintiff who recovers nominal damages may properly be regarded as a successful plaintiff, but it is necessary to examine the facts of each particular case. (Emphasis added) [10] Anglo-Cyprian has been followed in a number of cases in New Zealand, for example, Brown v Dunsmuir [1994] 3 NZLR 485. It is likely to apply if the plaintiff were to recover only nominal damages in this case. It would be comfortably accommodated by the Rules. Notwithstanding the general principle that costs will follow the event (r 47(a)), r 48D permits the Court to refuse to make an order for costs in such circumstances.[11] The substantial issue and the focus of argument is whether the plaintiff has a reasonable prospect of achieving an outcome which could reasonably be expected to shield it from a claim for costs. For the Bank, Mr Chan submitted that the chances of that occurring are slim.The claim – prospects of successBackground[12] In its second amended statement of claim the plaintiff claims the loss of instalments of about $270,000 paid towards the purchase of land in India. In December 1997 it sought to withdraw $10,000 from its account with the Bank in order to complete payment of the final instalment of the purchase price. The Bank had frozen the account and, notwithstanding advice from the plaintiff that the plaintiff would lose a substantial amount on the transaction if it were unable to obtain the funds, the Bank manager refused to allow the funds to be withdrawn. InUS International Marketing Limited v National Bank of New Zealand Limited [2004] 1 NZLR 589, the Court of Appeal held that the Bank was in breach of its contract by failing to pay the plaintiff's demand.Bank's submissions[13] The Bank resists the claim for damages on a number of grounds. First, it says there was never any contract for sale of the land. It will call the alleged vendors of the land to say they never agreed to sell. They will say the signatures on the agreement are forgeries. They will also say they have not received any money from the plaintiff. [14] Secondly, the Bank submits that even if there were a contract, the plaintiff faces insuperable obstacles under Indian law to establishing a right to recover. In a brief of evidence by Mr Ravi Nath, an eminent and highly qualified Indian lawyer, he expresses the opinion that:a) the alleged agreement is void and unenforceable under Indian law because the land is agricultural land which could not be sold to a foreign company by reason of the foreign exchange legislation; b) the plaintiff is accordingly entitled under Indian contract legislation to recover all payments made pursuant to the alleged agreement and has failed to take reasonable steps to recover those payments; c) even if the agreement were not void by virtue of the foreign exchange legislation, it is not enforceable by the vendors because it imposed a penalty. The plaintiff is entitled under the Indian contract legislation to recover all payments; d) if the agreement were not void under the foreign exchange legislation, the plaintiff could, on tendering the final balance of the purchase price, have obtained a decree for specific performance. [15] Thirdly, the Bank argues that the damages claimed are too remote. Mr Chan pointed out that in cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as likely to result from the breach – Victoria Laundry (Windsor) v Newman Industries Limited [1949] 1 All ER 997, [1949] 2 KB 528. That requires an enquiry into the information possessed by the Bank at the time the contract was made. Mr Chan said there is no evidence the Bank knew of any of the material facts relating to the land purchase until shortly before the breach occurred. He referred to the observations of the Court of Appeal on this aspect of the plaintiff's case at [72] of its judgment:Apart from certain idiosyncratic similarities of expression in the Indian sourced document and Mr Singh's covering letter, the proposition that a deposit equivalent to $250,000 would be lost if a single payment of $10,000 was not made seems unlikely and all the more so when it is appreciated that the disputed account would have had insufficient funds in it for $10,000 to be paid if the bank cheque tendered to the High Court had been accepted.Plaintiff's submissions[16] In response, Mr O'Callahan relied on expert legal opinion relied on by the plaintiff which takes issue with each of the key propositions of Indian law relied on by the Bank. The expert accepts that the alleged transaction contravened Indian foreign exchange legislation but does not accept that it would be void and unenforceable as a result. Nor does he accept that the instalments forfeited would be construed as a penalty under Indian law. He maintains they would be considered a genuine pre-estimate of damage. Accordingly, relief from forfeiture would not be available. And, because time is of the essence of the contract, he is of the opinion that specific performance would not be available. Finally, the plaintiff's expert witness expresses the view that because of procedural difficulties, it would not in any event be reasonable to take steps for recovery in India. He asserts that it would take 15-20 years to bring the litigation to a conclusion. (On this point, also, the experts are at odds; the Bank's witness says that litigation could be completed in two years.) [17] On the issue of remoteness, Mr O'Callahan relied on Jackson v Royal Bank of Scotland [2005] 2 All ER 71 (HL) to support a submission that damages will be recoverable if at the time the Bank entered into the contract it could have anticipated that the plaintiff might suffer loss as a result of a commercial transaction through not having the timeous access to funds. There was no need for the Bank to know something about the specific transaction at the time the contract was entered into.Discussion[18] The Bank has identified a daunting series of hoops through which the plaintiff must jump before it can be regarded as a successful plaintiff. It is impossible to assess the degree of difficulty which some present. The first, for example, is an allegation that the plaintiff's claim is an elaborate fraud. There is no way of judging whether that allegation will be sustained. The evidence of the Indian lawyer called by the Bank, whose brief I have seen, is impressive. He is highly qualified and his opinions generally convey a view of the law which accords with common law principles and, in a broad sense, coincides with New Zealandjurisprudence. But his opinions are disputed and the differences cannot be resolved in the context of this application. [19] The issue of remoteness is in a different category. The essential facts are not in dispute and the applicable legal principles have been established since Hadley v Baxendale (1854) 9 Exch 341, [1843-60] All ER Rep 461. They have not been modified by Jackson v Royal Bank of Scotland, as Mr O'Callahan suggested might be the case. Indeed, they were applied in that case to render liable the Bank of Scotland for the loss by the plaintiff of a key customer as a result of the bank disclosing to that customer, in breach of a contractual duty of confidence, information which led the customer to learn of the mark-up on goods being sold to it by the plaintiff. As a result, it ceased dealing with the plaintiff. At first instance, in the Court of Appeal and in the House of Lords, it was held that the plaintiff's interest in maintaining confidentiality was known to the bank at the time the contract was entered into. The loss of repeat business as a result of confidential information being disclosed was not too remote. [20] The circumstances of this case are very different. At the time of the contract between the plaintiff and the Bank (entered into some six weeks before the breach complained of) the Bank was not told of any circumstances which might have led to it contemplating that a failure to release funds would lead to losses almost thirty times greater than the amount sought to be withdrawn. On the face of it, the damages claimed are too remote.Decision[21] My overall assessment is that the plaintiff's claim has little chance of producing more than a nominal award of damages. That is not, of course, the end of the matter. As the Court in McLachlan made clear, the decision whether or not to order security and, if so the quantum, are discretionary issues for the Judge to decide as he or she thinks fit in all the circumstances. Other factors were raised in the plaintiff's notice of opposition but not pursued in argument. They included an allegation that the plaintiff's impecuniousity was caused by the defendant's breach.[22] If the claim for damages proceeds to trial, it is clear that the Bank will be put to great expense – well over $100,000. If the Bank successfully defends the claim in the sense earlier discussed, it will recover only what is ordered to be provided by way of security. [23] I am not persuaded that an order for further security will necessarily prevent the plaintiff pursuing its claim. Its impecuniousity has not prevented it from pursuing the claim thus far. It has also brought proceedings in this Court against the liquidator of a company in which it had an interest, US International Marketing Limited v Williams HC AK CP595-SD97 26 November 2003. It has paid security for costs in that proceeding of $10,000 and otherwise funded the proceeding since it was issued in 1997. [24] In his earlier affidavit Mr Singh gave an account of how the plaintiff had been able to fund the litigation. He deposed that the plaintiff had been able to pursue the action only because of the assistance and generosity of his family and associates and, it is clear, the indulgence of his legal advisers. He said he had personally guaranteed the existing debt to his solicitors but did not then have the means of satisfying that obligation. [25] At the time of the affidavit, March 2004, he said he was in the process of establishing a manufacturing business in Sydney in which he had invested $AUD50,000 obtained from personal loans. He said his income was sufficient only to meet the basic needs of his family. The only other asset disclosed was a motorcar worth $AUD12,000. [26] Mr Singh has been fortunate to enjoy the support of his family, friends and lawyers. He has been able to pursue litigation of which, as I understand it, he would be the ultimate beneficiary, without having to resort to funds of his own. At the same time he has been able to relocate to Sydney and establish himself in a business, the profitability of which is not disclosed in his most recent affidavit. And, of course, he was able to fund the instalments of $270,000 for the purchase of the land in India for the purpose of establishing a factory for the manufacture of leather garments.[27] Having regard to what has gone before, I am not persuaded that an order for security would inevitably bring the plaintiff's claim to an end. If he has the will to pursue the claim and confidence in the outcome, I have the sense that Mr Singh will find a way. The provision of security will not only protect the Bank, it will ensure that he assumes at least some of the risk of failure. [28] I think the amount of security should recognise the substantial costs which the Bank will be required to incur, and will be entitled to recover if successful, but should not be of a magnitude which might snuff out a meritorious claim. I assess that sum at $50,000. [29] There should be reasonable time for the plaintiff to make the necessary funding arrangements. On the other hand, an assurance that security is being provided should be available to the plaintiff before it is obliged to make final arrangements for the attendance of overseas witnesses at the trial, scheduled to commence on 27 November. Having regard to these considerations, I consider security should be provided in two equal tranches, one by 31 July and the second by 31 August.Result[30] The plaintiff is to give security for costs in the sum of $50,000 by paying the sum of $25,000 into Court by 31 July and $25,000 by 31 August. The proceeding is stayed pending the payment of these sums.